Thursday Grok: iPad makes Apple’s cash stash the magic pudding

Apple is selling iPads faster than people are being born.* Three million in the first three days — proving once again that Samsung along with all the other tablet makers are still just pretending.

At $400 bucks gross profit per unit, those three million iPads have just generated 1200,000,000 more greenbacks for Cupertino and will go a long way towards making up for the $10 billion Tim Cook generously started returning to shareholders this week in the form of a $2.65 quarterly dividend payment. That’s a dividend yield of 1.7 per cent on the current share price. Thanks for coming, Tim.

And who would have thought throwing money away would make you richer. Apple’s share price spiked further on news of the dividend as funds which are forbidden from buying stocks sans dividends rushed in after the announcement. The share price is up 50 per cent for the year, compared to the Dow Jones which is up just 7 per cent, according to <i>Techcrunch</i>.

Of course there are easier and infinitely safer ways to earn 1.7 per cent on your money. Grok’s cash management account current pays about 5.7 per cent, and those savings, unlike Apple’s share price are afforded a measure of protection. Then again, we are not generating anything like the $1 billion a week.

This morning for the first time we found reference in the local media to the suggestion that Apple is on its way to a trillion dollar valuation. Much the same was said about Microsoft during dotcom 1.0 and look how well that ended.

The real issue is what does this mean for Apple’s strategy in the long run? Jobs famously avoided dividends, believing it prudent to build an ever-bigger buffer for the day when the love well ran dry. And when the product cycle turns against you, as it inevitably does in this industry, a great big fat lake of loot will give you a lot of wriggle room to figure out what’s next, or more importantly, how to buy back into the game.

<i>The New York Times</i> reported that in Cooks’ conference calls with analysts, the Apple chief went out of his way to address this concern, “Mr Cook spent much of the time reassuring his audience that Apple’s top priority for its cash remained keeping the ability to finance its innovations. He said Apple still had a pipeline of strong products.”

For what it’s worth though, Grok is sympathetic to the dividend camp. After all, managers often lose sight of the fact that shareholders are the owners of the company. And who’s to say Apple would be any better at investing their cash than they would themselves.

The suggestion that some of the shareholders were muttering about legal action if the cash pile grew much larger may be merely coincidental.

The gig has just begun

As we have mentioned previously, Apple need not worry about the wolves at the door, at least for the time being. The iPad market is in its infancy, and the US smartphone market is still thick in the midst of a huge migration from dumb to clever.

But even these two favorable horizons pale against what is coming on stream.

<i>Business Insider</i> carries a chart today from which it noted that Android and iOS activations are now bigger in China than in the US. The activations trend line in the two countries crossed over in February this year as much due to US declines and Chinese gains. That speaks volumes, really.

One final point: For all the justifiable noise around the success Apple has garnered from the iPad 3, bankers UBS suggests Apple’s iPhone 5 will blow the high bar away, according to <i>Forbes</i> . And when have the bankers ever been wrong?

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham . He owns shares in Fairfax Media, not Apple so it’s best that you seek professional for advice, instead.

*Grok is indebted to FST Media founder Angela Horvat and her Twitter stream for this helpful factoid. Of the 340 million tweets generated on the micro blogging site yesterday it was nice to find one useful nugget.

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